Market Brief – Friday 8/9/19

Yesterday’s equity rally quickly reversed when the futures markets opened Thursday afternoon after the White House decided to hold off on issuing licenses for U.S. companies who want to do business with Huawei. Stocks further fell in early trading following a comment by President Trump that things were going well with China and we aren’t ready to make a deal, but next month’s meeting may be canceled. He quickly retracted the later part by stating the meetings were still on, but stocks didn’t respond enthusiastically.

In overnight trading, China is exporting deflation as their Producer Price Index (PPI) fell -0.3% in July, making this the first decline in three years. Consumer prices rose in China by +2.8% on an annualized basis. Rising consumer prices against falling producer prices will limit China’s ability to stimulate its economy.

The UK economy contracted by -0.2% from last quarter, which hasn’t happened since 2012. UK manufacturing output fell -2.3%, the largest drop since 2009. French industrial production fell -2.3% in June. German exports fell by -8% in June on an annualized basis while imports fell -4.4%. China’s auto sales fell -5.3% on an annualized basis, marking the thirteen out of fourteen months of declining sales. Japan was the surprise, with its GDP growth coming in at +1.8% for the second quarter.

The U.S. Producer Price Index slowed to +1.7% on an annualized basis, which is well below the Fed’s +2.0% target. The slowdown in the PPI supports that monetary decelerations lead to lower inflation. This also means the gold rally is ahead of itself, just like it was in 2007 and that the Fed will be forced to cut interest rates again.

Stocks bounced off their lows for the day after the White House clarified that the Huawei ban was only on Federal Departments purchasing from Huawei and that the process for granting special licenses to corporations was moving forward.

Investors we eager to bid stock prices higher, but all of the major indices closed below their 50-day moving average. The tone of the market is still bullish, so look for investors to push prices higher into next week. Treasury yields reversed their early lows as investors also sold Treasuries as they still believe inflation is coming, even though the data clearly shows otherwise.